Tuesday, May 20, 2008

While I think a lot of people don't buy the idea of supply side economics, this study is pretty remarkable (the idea that lowering taxes will be offset by higher tax revenues because the economy grows). If you track US government revenues as a percentage of GDP over time, while marginal tax rates vary widely, revenues stay remarkably constant. From the WSJ:

This is remarkable when you consider the rapid rise in GDP over time - and even more remarkable when you hear politicians suggest that they can pay for all their billions of dollars of new projects by taxing the rich. Accordingly, "The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP."